Transfer of Undertakings Directive

The EU Directive on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses, or parts of undertakings or businesses, Council Directive No. 2001/23/EC of 12 March 2001 (2001 OJ L. 82/16). In the U.K., this directive is implemented under “TUPE,” the Transfer of Undertakings (Protection of Employment) Regulations 1981. Similar laws are present throughout the EU.

The key provision of this directive and the applicable implementing legislation in the member states, is that where an ongoing business or operation is sold or transferred, that sale or transfer cannot provide grounds for ending the employment of any of its existing employees and that in addition, the new owner becomes responsible for maintaining the employees’ continuity of employment, i.e., that substantial terms of the employees’ service such as salary and benefits, including those due because of the length of employment (both under the old and new owner) remain unchanged. The impact of the transfer of undertakings directive and its member state analogues on the liabilities a new owner faces when purchasing a business should be carefully considered as part of any acquisition. However, the directive does afford an acquirer certain advantages, in that it is easier to purchase a business with its workforce and therefore its knowledge base intact.